the board is very cheap, why do you want an emulator.Test your prog on the real and use serialWrite("I'm at step One") and ZTerm1.1b7.OSX.dmg (on osx), a terminal emulation program to check the serial.

It's true that trought serial port I can do a 'message debugging' but in my experience it's more confortable do with simulated environment.

My experience in pic debugging is with proteus iris software. It's commercial soft, similar to eagle. Iris has an 'emulator' of the logic circuit you design and allows to run step-by-step, changing input states dinamicly, etc.,

Well, there is JTAG available on all Atmegas bigger than the Atmega8 on the current Arduino boards. With JTAG you have breakpoints, run control and variable/memory watch. So this is possible, in principal (the Atmega128 on the wiring boards could allready do it)! But you need a special JTAG programmer, too. And most important, the Arduino and Wiring IDEs lag JTAG support at the moment...